Annual Report 2010 - Ministry of Finance and Planning

Ministry of Finance and Planning Sri Lanka > Annual Report 2010Table 4.20 > Operational HighlightsYear 2005 2006 2007 2008 2009 2010International flights movements (Nos) 33,080 33,189 33,395 31,764 28,624 34,092Passenger Movements (Nos) 4.3 4.7 4.9 4.6 4.2 5.2Cargo Movements (MT) 160,122 170,907 163,570 151,952 138,067 167,130Source: Airport and Aviation Services (Sri Lanka) LtdService SectorSOEs are engaged in providingkey services of the economy suchas ground and air transport (SLTBand SLA) energy (CPC), UrbanDevelopment (UDA) etc. Many ofthese SOEs incurred heavy losses dueto non reflection of total costs in itspricing.Ceylon PetroleumCorporation (CPC)Despite global oil prices increasingon average by almost 28 percentsince December 2009, domesticretail prices of petroleum productsremained unchanged throughout2010. In the backdrop of highinternational prices, the governmentremoved certain taxes applicableon petroleum products with a viewto reducing the cost of production.Import duty on Petrol and Dieselwas completely removed on the 19thof January 2010 from Rs. 35/l andRs. 15/l respectively, which resultedin a revenue loss of almost Rs.20,000 million to the government.Despite this indirect subsidy bythe government, CPC incurred aloss of Rs. 26,922 million in 2010against the loss of Rs. 12,324 millionof 2009, a decline in the financialperformance of 49 percent. CPCincurred a loss of Rs. 20,074 millionthrough the sale of heavy fuel to theCEB and IPPs 10 at subsidized prices.Implementing government policy tomeet the energy needs of the lowincome segment, Kerosene was soldat the subsidized price of Rs. 53/lincurring a loss of about Rs. 10,236million.However the lack of a clear strategy tooperate in the market, low productiveuse of employees, weak financialand operational management andnon optimal utilization of resourceshas contributed significantly to thedeterioration of the performanceof CPC, negating the effect ofgovernment assistance. This is evidentas there is only a marginal differencebetween the cost of fuel producedat the CPC refinery and the cost ofrefined products imported.CPC faced liquidity constraints dueto the non payment of dues mainlyfrom CEB amounting to Rs.46 billionat the end of 2009.The governmenthas issued guarantees amounting toRs. 80,500 million facilitating CPC’sability to access funding from externalsources.In 2010 CPC experienced a change inthe structural composition of imports.On average of the total imports,crude oil consisted 55 percentand refined products 45 percent.However in 2010 there was a reversalof this composition with refinedproducts consisting 55 percent andcrude oil consisting 45 percent oftotal imports. This is mainly dueto the increase in demand for fueloil from the power sector and theshutdown of the refinery for a periodof 2 months for regular repairs andmaintenance. CPC has diversifiedits business by initiating exports ofNaphtha and Aviation Fuel during2010.CPC, one of the largest SOEs in thecountry, is also the single largestimporter at USD 3019 millionconstituting almost 6 percent ofthe GDP and 22 percent of the totalimports in 2010. With the economygrowing rapidly, it is expected thatthere will be simultaneous growthin the demand for energy in thecountry. However if CPC is to meetthis challenge successfully it needsto undertake a due diligence exerciseon its operations and implement astrategy to facilitate an extensivecapital investment plan within thenext five years that will increase itscapacity and operational efficiencies.10Sale price of Heavy fuel to CEB and IPP -January –August 2010 at Rs.25/l andSeptember to December 2010 at Rs.40/l,while the average cost was between Rs.50-65/l223